An appraisers thoughts on the repeal of Dodd-Frank

Will Dodd-Frank be repealed?

Dodd-FrankWith the inauguration of Donald Trump as our 45th President of the United States, there has come the possibility that Dodd-Frank might be repealed. What does this mean for us as appraisers?

Will things go back to the way they were before Dodd- Frank, or even before the HVCC (Home Valuation Code of Conduct)? What about those unintended consequences that arose from these two pieces of legislation?

It’s anyone’s guess as to what Donald Trump will do. It will be interesting to see if the major appraisal organizations will have a say so in what happens if Dodd-Frank is repealed.

It seems in the past that these organizations have been left out of the discussion when the major changes have been made to our profession. One would think that the opinion of the group most affected by the changes would get a seat at the table. I guess only time will tell if our voices will be heard moving forward.

So, if Dodd-Frank is repealed, what changes will we see in our day to day functioning as residential real estate appraisers? While there were some bad consequences of HVCC and Dodd-Frank, there were also some good things that happened.

I thought I would share my thoughts on what I would like to see stay as well as those policies that I hope I never see again. Please leave a comment below with your thoughts on what you would like to be kept as well as what you hope is done away with.

Things I’d like to see stay and go if Dodd-Frank is repealed

  1. Independent ordering of appraisals (rotation)– In my opinion, the practice of rotating appraisers with appraisal assignments helps to prevent loan officers from colluding with appraisers. In the past, it was possible for a loan officer to work with an appraiser that may give them the value they want, or who they could pressure into giving favorable values. This undermines the appraisal process and takes independence out of the transaction.
  2. Appraisal Independence– Regulations that prevent lenders from pressuring appraisers to hit values or threatening them from receiving future work should be kept and enforced. Efforts should also be made to prevent lenders from withholding timely payment of fees in retribution for low appraisals.
  3. Accurate disclosure of appraisal fee and appraisal management company fee– The whole Appraisal Management Company (AMC) model was built on paying less than customary and reasonable fees to appraisers. Rather than charging a fair fee for their services on top of the appraisal fee, many AMC’s have made it a common practice to take an unreasonable cut of what the appraiser is paid.An example would be the following: Instead of adding their fee of $150 on top of the appraisers fee of $400, for a total fee of $550, it is not uncommon for them to take their fee of $150 out of the appraisers fee of $400 so that the appraiser only gets $250. It is this practice that has contributed to the perceived shortage of appraisers. In most areas of the country, there is no shortage of appraisers but rather a shortage of appraisers willing to work for lower than normal fees.
  4. Limited communication with appraiser after the appraisal is completed– At the current time, there are no regulations prohibiting communication with the appraiser before the assignment is finished as long as the value is not discussed. It is reasonable for there to be a discussion between agent and appraiser when questions arise before the job is completed.After the appraisal is finished is another story because most of the time any conversations occurring at that time are because the value is too low. The appraiser should not be pressured or harassed into changing their value unless there is additional market data that supports a higher value. This is the type of information that should be provided before the appraisal is complete.
  5. Changes in appraiser/trainee inspection requirements– Under current regulations there are excessive restrictions on what appraiser trainees can do. Appraiser mentors must accompany trainees far too long in the process leading up to the trainee getting their full license. It is difficult for the mentor to accompany the trainee on all of their assignments as well as their own so most seasoned appraisers will not do this. After sufficient training, the trainee should be able to complete appraisal inspections themselves to free up the mentors time. They would of course still review the work before it went out the door.
  6. Make AMC’s liable for using geographically incompetent appraisers– Another problem with many AMC’s is that their only criteria for an appraisal assignment is the low fee that they offer. They will shoot out a broadcast email to appraisers and whoever replies back at the low fee will get the assignment, no matter where they are located.This is not right on so many levels. They should be required to offer a customary and reasonable fee only to those appraisers who are geographically competent to complete the assignments. Banks should also be liable for AMC’s whom they use that practice this type of behavior.
  7. Better enforcement of “customary and reasonable” fees– Since HVCC was created, and Dodd-Frank replaced it, little has been done to enforce customary and reasonable fees. There have been a couple of instances over the last several years but they are the exception rather than the rule. If this is not addressed the growth of our profession will continue to be stalled because no one will want to get into this business due to the low fees.
  8. Revise time frame for lenders to estimate appraisal fees– While not directly included in Dodd-Frank, this change in the interpretation of the three-day requirement was revised in the 2014 TILA-RESPA Integrated Disclosure Rule. It requires lenders to give exact quotes for appraisals to applicants, which on the surface is not all bad.The problem arises when there is a complex appraisal assignment that may require a higher fee. If an appraisal fee is quoted by the lender and later it is discovered that the appraisal is complex and requires a higher fee, it makes it very difficult to change the fee which may result in an appraiser not getting paid a customary and reasonable fee for the complexity of the assignment.

Questions
So what are your thoughts on the possible repeal of Dodd-Frank? What do you want to see stay and what do you want to see go? Leave a comment below and let me know your thoughts. As always, thanks for reading.

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Comments

  1. Usually the only question I want answered is “Why do you have the range include our sales price but your assigned value is well below the sales price” but that never seems to get back to me…

  2. Definitely like the AMC being responsible for assigning geographically incompetent appraisers.

  3. I think that Dodd-Frank brought about some good legislation to help with licensing requirements. Hopefully any repeal/rewrite will not undo the benefits associated with the licensing and the requirement of a surety bond as part of the licensing.

  4. All things considered, it is time to repeal and rewrite ALL appraisal related federal regulations starting with FIRREA. Instead of modifying FIRREA for more than 25 years to accommodate special interests go back to the ORIGINAL draft for the framework. Cal it FIRREA II and include ALL the required elements that were missing from the original, that are agreed as being necessary now.

    Then add all the things that were missed in that version. 1. Reinstate the prohibition against requiring specific designations as a condition of hiring or work in federal agencies. 2. Insert a statement in FIRREA II that the default C&R MINIMUM fee will be the equivalent to what the Office of Personnel Management has determined civil service appraisal fees are. (sample available at http://www.mfford.com “C&R ” tab. This is a time and experience based fee proposal). 3. Eliminate ALL state appraisal offices and replace with a single federal regulatory agency so that we have FIRREA II applied the same way in Colorado as California, or Illinois or NC. 4. Exclude the amount (fee) actually paid to the appraiser from TRID preliminary disclosure. You cant quote a fair fee until the nature of the appraisal assignment is known and that cant be known until an appraiser screens the property! The current system amounts to price fixing by banks and AMCs with NO APPRAISER input! 5. ALL GSE residential 1-4 unit appraisal orders should be required to be placed through the GSE itself whether FNMA, FreddieMac, NCUA, VA, HUD/FHA or USDA. Let that agency assign work based on a rotation system like VA uses.

    If AMCs manage to continue to exist to serve banks in dealing with the (new) fed ordering agency let them get paid from bank funds…not borrowers or appraisers fees!

    • Thanks for your thoughts Mike. As I have said in previous comments I think it is important for appraisers to mobilize and come together to let the higher powers know how we feel and how some things that are being done currently are just not working. We all need to write our congressman with these great ideas.

  5. Hello Tom,
    I agree with much of what you stated, and fellow appraisers, very insightful. I just want to state Customary and Reasonable Fee should be removed from DoddFrank. It’s too vague and allows for price control and places limits on appraiser’s fees. There should not be a national appraisal price. I agree, the appraisal fee should be seperate from the AMC fee. The consumer should know what’s going on, and where their fees are going. Hopefully, this can spark a change in the whole system, if the consumer knew what was going on.

    Apply a law that states the appraisal fee must be paid within 30 days, with proof of paid invoice from the appraiser before close of escrow, to avoid non-payment.

    I haven’t read all of DoddFrank, but as a boots on the ground appraiser, it affected me in mostly bad ways. Lower income, more stips, extended report writing time, limits on potential trainees, to name a few. AMC’s currently act as parasites. And as a result of AMC’s, there has been a change to appraiser ethics, and education requirements, with accusations of shortages, while banks still have control of the process, and chance for value manipulation. IF Dodd Frank does something good, like stops bankers from gambling, then keep that. Bankers should never be allowed to gamble other peoples money. Old school banking use to have 20% reserves. Why is 3% reserve considered acceptable? Seems like DoddFrank could use a lot of help. Elizabeth Warren probably could help be a good voice for appraisers.

    On a side note: Educating the public on who we are and explain what we do, should be a priority of all appraisers. “We hold the keys to their net worth(Ross)”. I appreciate this blog and bloggers. Voice of Appraisal is genious. But just as we are expected to communicate with our peers, and other professionals to become better appraisers, we should channel those same efforts to educating the public, as “we are their only hope(StarWars).” “Defendor of the American Dream.” After the public understands what we do, after we explain to them how the economy works, and how housing markets shouldn’t increase 15-25%/yr, how banks manipulate housing inventory and prices, after maybe the CU is eliminated, perhaps Glass Steagall is re-implamented, after commision based fees are eliminated, after traditional banking is restored,, then finally we can be satisfied. Then maybe the public will understand why they want an ethical, unbiased, and fair appraiser. Then, maybe the American Dream can be re-lived.
    Let’s not be the next Canada, and watch the CU become another Emily.
    This is the time of change.

  6. Tom, I sure hope people and organizations are watching our back with this repeal. I hope we don’t miss the boat when parts of Dodd Frank are struck down. We were left out in the cold before and this is our greatest chance to correct all the bad stuff that has happened to us before

    • I agree, Tom. We as appraisers need to be on notice about who we can write to in the legislature to let them know our thoughts. Not sure if it will help but it sure won’t hurt.

  7. Carol Horton says:

    I would like to see a reduction in what I call ” junk data” example Sales history. This is just JUNK data. It just adds time to complete an appraisal and helps no one. Although the 1004MC might be helpful – So what! We as appraiser’s know whether the market is declining, stable or increasing in value etc. This just adds time to an appraisal. AND WE HAVE NEVER BEEN COMPENSATED A DIME FOR THIS. instead our fees went down. ALL THE PHOTOS – are you kidding me !- Every Bedroom – Invasion of privacy and more JUNK data. I understand photos of Kitchens and Bathrooms, upgrades and damages- but every bedroom is going way too far. I would like to see a reduction of Junk Data requirements.

    • I can remember when I first got into appraising the reports were around 8-10 pages long and only required 3-4 pictures of the outside of the subject. Times sure have changed and a number of things we have to do have indeed increased. I think it is our responsibility to charge enough money to cover our time and expertise so if you are not charging enough I would start there. I’m not sure that we will ever go back to doing less work so we should at least get paid customary and reasonable fees for what we do.

    • In rural Arizona we are running $650 for a VA Appraisal(set be VA) and 40 to 45 days for the site visit, FHA, Conventional, and USDA are at $900, if you want a rush in under 45 days for side visit and another 7-10 for appraiser submission, tack on $150 for a 55 day appraisal after order time, something wrong somewhere, they have to drive a 110 mile round trip, $250 trip charge, then find some piddly thing out side and the reinspect fee over $1500, wrong, wrong, wrong, not right for buyers or sellers.

    • Mostly agree Carol except sales history. If not required too many appraisers don’t even check for prior sales that DO influence the current market value. Flip sales are case in point. Id agree to remove a special section in form for it though. Frankly we have always been required to analyze and report prior sales that bear on current value. Agree with rest. Lets have appraisers input on a new form.

  8. Michael Jones says:

    Trump is a developer. Many real estate developers see appraisers as obstacles (that is putting it nicely). My gut tells me any changes to DF won’t be good for most appraisers. I hope I am wrong.

  9. As an appraiser of 41 years in Ohio, I can agree that there are many parts of the Dodd-Frank law that makes sense. I love no pressure and the independence to complete my report with minimal revisions for the most part. What I don’t like are the bad AMC’s that pay the $225-$250 fees for a full URAR report and the fools that accept them. I believe that these companies need to be eliminated or at the very least work at minimum customary fee level for all basic URAR reports. The broadcast order system should be abolished as well.

  10. Thanks for the breakdown, Tom. As a real estate agent in Austin, TX, one of my biggest concerns is the level of accountability for bad appraisers or appraisals. I certainly don’t want an appraiser to be coerced to assign a property at an incorrect valuation, but there are definitely appraisers who don’t put in the time and effort to do their job well. Most are GREAT, but not all. Maybe I am just not aware of the accountability already on appraisers? I don’t see it and this remains a concern of mine.

    • You make some great points Kyle. I guess there will always be good players and bad players in every profession. One way I tackle this is by educating agents on what to expect from the appraiser and how to spot inconsistencies in an appraisal. I also encourage them to interview the appraiser to make sure that they are competent to perform appraisals in the area. There have been occasions in Birmingham where appraisers came over from Atlanta to do appraisals and they didn’t even know the market. Also, if an appraiser only spends 5-10 minutes at a property you can pretty much bet that they aren’t doing a thorough job. Thanks for sharing your thoughts.

  11. Peter Gallo says:

    Being a good appraiser is one thing, being a good business person is another. We have all heard this. Dodd/Frank unfortunately throws the baby out with the bathwater. While trying to support good appraisal practice, it destroys the appraiser’s business thus destroying good appraisers and eliminating their practices. In my opinion, the answer is not to refine Dodd/Frank and create more nuances to a bumbling attempt to solve a problem that was created by the same structures that Dodd/Frank now codifies into law and common practice. (Washington Mutual/eAppraisIT – CUOMO – FNMA – HVCC)

    Dodd/Frank and other regulations that existed prior in order to protect appraisers from pressure, are not/were never enforced. Being able to deal with pressure and being able to run a business without sliding down the lowest fee slope is part of the job and will result in success as an appraiser. All Dodd/Frank and HVCC did was give fertile ground to allow for the continuing AMC debacle. Pressure now exists in other forms such as reconsiderations of value, constant requests to reply to CU data, etc., not to mention the direct contact from Realtors & homeowners who don’t care about regulations. As always, our businesses and the way we run them, are up to us, not with the help of the govt. When you ask for help from the govt, you don’t know what you are going to get and it only leads to loopholes and an endless spiral of more rules and regs to close loopholes but open new loopholes, and so on , and so on.

    We need to not only speak up for ourselves and not rely on some other national organization that we think might help us only to find that they have some other interests that run counter to what they actually advertise to members, we also need to rely on ourselves to do the right thing for our businesses and our profession by being strong and not be lured into a race to the bottom by NOT engaging with clients who you will NEVER be able to convince to rely on YOU, your business and develop a relationship with you on your quality and your professionalism. There are too many stories STILL out there about appraisers who act unprofessionally and are catering to clients that use and abuse them.

    In my mind, “appraisal independence” has done nothing but left appraisers “independent” of their ability to run their businesses and “independent” of their clients. All we have been left with are the problems “independence” was supposed to cure. Pressure, low fees and no ability to be “independent”.

    Enforce the laws, don’t create new ones that do more harm than good. I really become concerned when I hear folks talking about expanding Dodd/Frank or revising it to make it “better”. I know that many will not agree with me, but I don’t see anything better for appraisers since 2009. Whatever we might have gained wasn’t worth giving up our ability to stay in control of our own businesses and being left with the current threats to our entire existence.

    sorry for the run-on sentences.

    • Thanks for your thoughts Peter. Don’t worry about the run ons, we all do it. 🙂 As I stated within my post, I think there were some good that came out of Dodd/Frank, but I agree that it left us with some problems as well. I’m with you in that we have to stand up for ourselves and not wait for a organizatin to do it for us. We all have the responsibility of looking out for ourselves by dictating how we will do business concerning low fees, etc. We have to be professional and demand respect in order to get it. Appraisers must work together as a group and I have seen more of this over the last several years. Hope to hear more from you in the future.

    • Exactly. Enforce the laws that were already in existence rather than punish the other ones who were abiding by them all along.

      • It is amazing what can be done with existing law enforcement. It seems we make laws and then after the good feelings are gone we forget about them or there are other agendas that come along. Thanks for your input.

  12. Who has mailed a letter to their congressperson, to Mr. Hensarling (chair for the Financial Services Committee), their appraiser organizations and coalitions (who take part in discussions and regularly give feedback to government participants), the Appraisal Foundation, and so on? A few weeks ago, I mailed a letter to Mr. Hensarling, regarding appraiser independence and the importance of AI remaining – in some fashion – in whatever regulations result/ remain (such as the appraiser having no interest in the transaction, and the prohibitions and allowed actions of lenders). If you say nothing… it is guaranteed that you will not be heard.

    • Great points Joshua. We have to get involved and stay involved going forward. We cannot count on any appraisal organization but rather ourselves to make sure our voices are heard. Thanks for sharing.

  13. Thanks for the article Tom. I agree with you. Simply put in my words, Dodd-Frank has been good for appraisers in terms of lender pressure almost going away and bad for appraisers in terms of AMCs having the power and their ability to keep fees low while requiring increased scope of work. I think that the most important thing you said is, “It will be interesting to see if the major appraisal organizations will have a say so in what happens if Dodd-Frank is repealed.” I think that answer is an overwhelming, “No.” The problem with the appraisal organizations is that there is very little money behind them in relation to the money that is behind the banking sector. If regulations are being dismantled or added, I think the appraiser will usually pay the price because they are not heard. I would not be surprised if rolling back of Dodd Frank also inclined rolling back of requirements for appraisals on the vast majority of loans and allowing alternative valuations. Everyone wants faster and cheaper loan closings. The banks would love it, realtors would love it, home buyers would love it… until the wheels fall off on the economy again and people start asking why we don’t have appraisers anymore and good old fashioned smart lending practices.

    • You’re right Gary. I think over the last couple of years appraisers have begun to find their voice, especially with state coalitions. Now we just need a strong leadership that will help us focus our efforts on the things that will move our profession forward the most.

  14. Tom just cuts to the chase and lays it all out in black and white. Areas of Dodd-Frank do need addressed. What I see is a system that’s systematically dangerous as the events prior to the 2008 crisis. Conflicts of interest abound in the financial sector. The collateral CU is another culprit of the culling on valuation. There is certainly no transparency in the shifts and maneuvers banks and their assigns are taking to legitimize risk again. Bill Black sums it all up perfectly by definition of control fraud and can be found here: https://en.wikipedia.org/wiki/Control_fraud

    The models being manipulated today, as a result of bad/no regulation and bad interpretations of regulations certainly make the finance sector function a lot like a three legged chair these days.

    All the best Tom!

    • Thanks Lori, always appreciate your thoughtful input. Appraisers must be involved in further legislation moving forward or we will be cut out of the equation. This is where organizations like the Appraisal Institute need to play hardball so that they are sticking up for appraisers and the appraisal profession.

  15. If it is repealed, I am already preparing my spiel to tell agents and loan officers if they want to hire me. My fear is we’d go right back to having people say, “I’d like to hire you to do the appraisal. Can you do a quick comp check first to make sure “value” is okay?” I will be very clear there will be no comp checks in my world.

  16. Mark Anderson says:

    Dodd Frank was ill conceived and not done on a bipartisan basis. With that said, in my lifetime, I have never seen a regulation rescinded. If you think that AMC’s are not pressuring appraisers in respect to value, I have a bridge in Brooklyn to sell you. Pressure is part of the job, in my opinion it was a small group of appraisers that succumbed to pressure in the past. There is no way to avoid it from my perspective. I have a suspicion that NAR will have a say in any revisions in the future. They are unhappy about “low” appraisals which they determined to be about 11%. No pressure.

    • I agree Mark, it will probably be next to impossible to achieve 0% pressure on the appraiser by either the loan officer, AMC, or agent, in some form or fashion. Their salary is based on them being biased, whereas ours is not. I personally have not seen as much pressure as before these regs were passed but I hear a lot about AMC’s still pressuring appraisers. I think they are the cog in the wheel at this point and things need to be done to regulate them more as well as the fees they pay appraisers.

  17. Keep up the good work Tom 🙂

  18. Kenneth Smith says:

    Throw out Dodd-Frank and Obama healthcare and start over. I think we can do better now that we have seen all of the problems those two laws presented.

  19. We definitely will know what NOT to do.

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